Scandinavian Working Papers in Economics

Oslo University, Department of Economics

No 19/2002: Local Unemployment and the Earnings Assimilation of Immigrants in Norway

Erling Barth (), Bernt Bratsberg () and Oddbjørn Raaum ()
Additional contact information
Erling Barth: Institute for Social Research, Postal: Institute for Social Research, Postbox 3233 Elisenberg, N-0208 Oslo, Norway
Bernt Bratsberg: Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, N-0349 Oslo, Norway
Oddbjørn Raaum: Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, N-0349 Oslo, Norway

Abstract: Labour market outcomes of immigrants and natives are affected differently by macroeconomic conditions. In particular, we show that earnings of immigrants in Norway from outside the OECD area are more sensitive to local labour market conditions than are earnings of natives. Failure to account for such differences may bias estimates when periods of rising or declining unemployment are important to identify assimilation effects on immigrant earnings. We show that this is the case for Norway: An observed drop in relative earnings of non-OECD immigrants after about 10 years in the host country disappears when we account for differential business cycle effects on immigrant and native earnings. The empirical evidence also reveals that local labour market conditions impact the rate of the earnings assimilation. We interpret the effect of unemployment on the assimilation rate in terms of a combined "wage curve effect” and a “learning effect” on the rate at which immigrants acquire country-specific human capital.

Keywords: immigrants; unemployment; Labour market; assimilation

JEL-codes: J61; J82

48 pages, June 17, 2003

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